1 Full Economic Costs (fEC) of Research Projects An Introduction Presented by:

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Full Economic Costs (fEC) of Full Economic Costs (fEC) of Research Projects Research Projects

An IntroductionAn Introduction

Presented by:

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Objective of PresentationObjective of Presentation

• To introduce academics and administration managers to fEC as a basis for costing Research projects.

• To emphasize the support provided by Research Administration during and after project implementation.

• To introduce a short summary of the costing requirement including changes to existing methodology.

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Topics of DiscussionTopics of Discussion

• Background - where did fEC come from ?

• Why is fEC important ?

• How is fEC calculated ?

• Budgeting academic time.

• Admin. support & implementation timescale.

• Research Council Costing Requirement.

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Background - where did fEC come from ? (1)Background - where did fEC come from ? (1)

• Transparency Review (TRAC) introduced 1998 in response to JIF and SRIF1.

• HEIs more transparent about how they spend between Teaching (T), Research (R) and Other Activities (O).

• Figures reported to Funding Councils and consolidated for UK sector.

• UK sector figures showed big losses in R.

• Treasury accepted conclusions: SRIF2

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Background - where did fEC come from ? (2)Background - where did fEC come from ? (2)

• R project costs on a fEC basis (from TRAC).

• Government emphasised HEIs should recover fEC to ensure sustainability of R.

• Extra £120M pa for current volume of Research Council (RC) projects from 2005/06.

• RCs will fund 80% of fEC - balance from institution’s funds and /or dual support (RAE).

• Govt.depts.should fund 100% of fEC.

• Charities ?

• Lots of info at: http//www.jcpsg.ac.uk

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Why is fEC important?Why is fEC important?

• Sustainability

•“ An institution is being managed on a sustainable basis if, taking one year with another, it is recovering its full economic costs across its activities as a whole, and is investing in its infrastructure (physical, human, and intellectual) at a rate adequate to maintain its future productive capacity appropriate to the needs of its strategic plan and students, sponsors and other customer requirements.” (Definition in TRAC Volume III)

•Issues - fEC, strategic, pricing, project management/cost recovery, investment

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A Point to Remember !A Point to Remember !

• fEC is the methodology used to cost projects to ensure sustainability etc of Research.

• Research proposals contain a PRICE for the Research which may be different to the cost.

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How is fEC calculated ? (1)How is fEC calculated ? (1)

Current Costing Method• RA costs• Technician costs• Non-staff direct costs• O/H recovery (if applic.)

eg.46% for RCs

fEC• RA costs• Technician costs• Non-staff direct costs • Estates costs as direct• Indirect costs• PI costs • Replacement cost of

departmental equipment

Estates now includes Infrastructure costs, Indirect costs now include COCE, both previously not included in College costs.

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How is FEC calculated ? (2)How is FEC calculated ? (2)

• Estates costs as direct:

- RCs will fund. Other sponsors may follow.- Charge on basis of £X / acad.staff member (FTE)

• Indirect costs:

- Charge on basis of £X / acad.staff member (FTE)

• PI costs:

- PIs to estimate time spent on projects (actual hrs)- Apply cost according to grade of staff.

Research Councils will fund 80% of all of this on ESTIMATE. No need to record actual time by project for RCs.

Sponsored PGRs and equipment costs over £50,000 are exceptions to the rule.

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Budgeting academic time (PI costs) (1)Budgeting academic time (PI costs) (1)

• Time should be estimated in actual hours.

• Include time for project mgmt., writing papers, dissemination, etc.

• Exclude PGR training/supervision unless it is a studentship included in the sponsor’s project.

• PIs to keep simple records to verify time eg.notes/log book of events, meetings, etc.

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Budgeting academic time (2)Budgeting academic time (2)

• No prescribed methods for estimating time .

• Could base on hours required each month over project life; or on standard proxy e.g. [2 hours] a week per RA plus [2 hours] a week per project (more if more complex project)

• Research Councils will be comparing estimates

• Overall reconciliation (at institutional level) of estimated time with actual time spent (from annual TRAC time allocation schedule data)

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Administration Support Administration Support

• Usual one to one support provided by Research Admin through application process.

• All costing done within RACE 2 by authorized staff.

• Database of estimated PI time on awarded projects will be kept to verify commitment of time.

• RA contacts:

• Unresolved Issues:

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Implementation Timetable (1)Implementation Timetable (1)

• January 2005:

fEC rates calculated

• XXXXX:

Institutional systems for fEC established.

• XXXXX:

Training on new processes provided.

Costing/managing projects on fEC basis begins.

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• July 2005:

Release of RC forms

Training on new forms provided

• September 2005:

All RC applications made (and funded) on fEC basis. Projects will start April-Dec.2006.

Implementation Timetable (2)Implementation Timetable (2)

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SummarySummary

• Introduction to costing R projects on FEC basis.

• Involvement of academics (budgeting time).

• Central support from RAdmin.

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ConclusionConclusion

• Potential increase in net R income from RCs (pa) c.£XX for (Institution name) in 2010.

• Opportunity to improve cost recovery from other funders.

• Improved resource will directly benefit R active academics.

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Open Discussion !Open Discussion !

ANY QUESTIONS ?ANY QUESTIONS ?

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fEC COSTINGfEC COSTING

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Under fEC there is a subtle reclassification of certain categories of cost.

“Direct” costs remain.

Indirect costs are analysed and identified as either “Directly Allocated” or “Indirect” costs.

fEC Costing - afEC Costing - a

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Direct Costs

• Research Staff SalariesResearchersTechnicians (inc animal techs)OtherDirect administrationComputing/computing support staffCasual staff etc

• Travel & Subsistence• Consumables• Equipment• Large Capital

fEC Costing - bfEC Costing - b

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fEC Costing - cfEC Costing - c

Directly Allocated charges

• Principal Investigator• Other Academic staff• Other staff subject to Time Allocation excluded from

“Indirect Cost” calculation• Replacement Cost of Departmental Equipment• Estates/Premises Costs ( as £/FTE Academic Staff &

PGR’s)

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fEC Costing - dfEC Costing - d

Indirect costs

• Indirect costs

(as £/FTE Academic Staff & PGR’s)

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fEC Costing - efEC Costing - e

Under fEC the main changes relate to an analysis of “Overhead” charges. This identifies -

• PI and Associates time.

• Equipment.

• Estates/Premises Costs.

• Indirect Costs (All other overheads)

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New costs are introduced. - “Infrastructure” and “Cost of Capital Employed”.

• Infrastructure cost is added to Estates/Premises cost to reflect the full long-term maintenance of College Infrastructure.

• Cost of Capital Employed is added to Indirect costs to reflect the legitimate costs of running and financing the business.

fEC Costing - ffEC Costing - f

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PI and Associates Time - 1

• All Academic time to be identified and costed. (Includes Research Fellows).

• Expressed as hours/day/week/year (not %).

• £ per hour based on national fEC standard hours of 1650 pa (220 days @ 7.5 hrs per day).

fEC Costing – g.1fEC Costing – g.1

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PI and Associates Time - 2

• Includes ALL estimated time dedicated to project.

• Time spent training/supervising PGR students to be separately identified.

• These costs are charged to Directly Allocated Charges

fEC Costing – g.2fEC Costing – g.2

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Other Staff

• Non-academic staff subject to time allocation (principally Pool Technicians) will be charged to Directly Allocated Charges and their costs excluded from the Indirect Cost calculation in TRAC

fEC Costing - hfEC Costing - h

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Equipment - New

• All new equipment purchased for the project to be charged as Direct Cost.

fEC Costing - ifEC Costing - i

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Equipment – Departmental etc.

• Replacement cost charged to Directly Allocated Charges.

• Formulated cost based on use/depreciation.

fEC Costing - jfEC Costing - j

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Estates/Premises Cost

• TRAC produces a £/FTE cost.

• Based on total annual E/P cost adjusted for estimated use of existing equipment.

• Relates to Academic R staff and PGR student FTE.

• Nationally imposed and locally derived weighting. [Academic staff @ 1.0x fte, PGR Lab based @ 0.8x fte, PGR other based @ 0.5x fte]

• These costs are charged to Directly Allocated Charges.

fEC Costing - kfEC Costing - k

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Indirect Costs

• TRAC produces a £/FTE cost.

• Relates to Academic R staff and PGR student FTE.

• Nationally imposed weightings. [Academic staff @ 1.0x fte, PGR @ 0.2x fte]

• Calculated from all central costs. (College + school + department).

fEC Costing - lfEC Costing - l

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Infrastructure Costs

• Part of the TRAC basic calculation, additional to statutory accounts figures. NOT identified separately for fEC.

fEC Costing - mfEC Costing - m

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Open Discussion !Open Discussion !

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Simple Case StudySimple Case Study

Group WorkGroup Work

45 Minutes for Consideration45 Minutes for Consideration

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CASE STUDY – 0.1CASE STUDY – 0.1

Question:

• Calculate the fEC of the project based on the specific data.

• Show the split of costs as follows:

• Directly Incurred costs,

• Directly Allocated costs,

• Indirect costs..

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CASE STUDY – 0.1aCASE STUDY – 0.1afEC Training – Simple Case Study The final two pages of this document contain the case study question and relevant data. Although the presentation has provided most of the information that you need complete the case study, key elements are noted here to assist you. All expenditure that can be identified at source as specific to the project must be costed (and charged) directly to the project. All costs that have to be attributed being based on driver sets or estimates of time are charged to “Directly Allocated Costs”, except for “Indirect Costs”. Principle investigators (PI) and Co-investigators (Co-I) must estimate their time dedicated to each project in hours. It should be split between research activity and PGR student support (training and supervision). PI and Co-I costs are based on 1650 hours per annum (220 days @ 7.5 hrs per day). Pooled Technicians costs although rolled into Estates/Premises costs currently must be extracted and costed using a driver such as “estimated % of time use by project” by 2007. Estates/Premises costs are calculated on a £ per FTE basis using academic staff FTE and PGR student numbers in research as the driver. Indirect costs are calculated on a £ per FTE basis using academic staff FTE and PGR student numbers in research as the driver. Standard weightings are a requirement of fEC when allocating Estates/Premises and Indirect costs. PGR students are weighted @ x0.8 for laboratory and x0.5 for non-laboratory Estates/Premises research costs, and x0.2 for indirect costs. Care must be exercised with existing departmental equipment. Depreciation on such items is charged against Estates/Premises costs and to include the full cost of use would mean double counting of the cost. Therefore under fEC rules the total annual cost of existing equipment purchased from departmental funds that will be used for projects must be deducted from the total Estates/Premises cost prior to any allocation to projects on a £ per FTE basis. Infrastructure costs form part of the Estates/Premises cost under TRAC and is in addition to the statement of accounts figure. Cost of Capital Employed forms part of the Indirect cost under TRAC and is in addition to the statement of accounts figure.

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CASE STUDY – 0.1bCASE STUDY – 0.1b Full Economic Costing case study – question Calculate the fEC of the project based on the following data, showing a split of costs as follows: Directly Incurred costs, Directly Allocated costs and Indirect costs. Full Economic Costing – case study data Life of project – 5 years Laboratory based department Financial details: Note Details Estimated costs (K£)

In Base Year (Y1 of project) 1 Principal academic (PI) £K60 p.a. (top of scale): only dedicates 750 hours in total over project life to

the project. Time spent training and supervising research students funded as part of the project is 5 hours/week for 43 weeks p.a. (215 hours p.a.): time spent on training and supervising research students funded elsewhere is 4 hours/week.

2 1 Co-investigator £K40 p.a. (not at top of scale: 4 increments of £1000 p.a. to achieve) Spends 200 hours on the project p.a., 1000 in total over project)

3 1 Research Assistant £K25 p.a. with annual increments of £K1 p.a. - to be employed for first two years only.

4 1 Research Assistant £K30 p.a, top of scale and works throughout the project life on the project 5 2 Technicians,

dedicated to project (1) £K20 p.a., top of scale (2) K£15 pa, 3 increments of K£0.5 awarded annually on 1 August

6 1 dedicated clerical post

K20 pa, increments of K£0.5 pa annually on 1 August

7 Travel £K10 p.a. 8 Consumables £K20 p.a. 9 Equipment £K250 in total:

(£K51 - new purchases, residual value at end of 5 years is nil (£K49, one item, replacement value– already owned and two years old, expected life 5 years, dedicated fully to project with use of 200 days p.a. which is assumed to be efficient utilisation. This was not initially funded through a Research Council research grant) £K150 – new purchase of one item with nil residual value at end of project )

10 Use of major research facilities

Use of major research facilities for 50 days on a charge out rate of K£1 /day

11 Computing costs £K2 p.a. being recharges of computing time 12 Project studentship

stipends and tuition fees

£K12 p.a stipend. £K4 p.a. tuition fees,.£K1 p.a. training allowance

Note: Salary costs include “on-costs” such as NI and pension.

Other university data Details for Y-1 Statistics Academic Staff FTEs, excluding RAs 2000 (200 direct to R) Research Assistant FTEs 500 (spending time on externally

funded research) 100 (spending time on externally funded research and part (10%) on T and S

PGR students in laboratory departments 1000 PGR students in non-laboratory departments 200 Other student FTEs 18000 Estates costs (includes depreciation of £5 million, Pooled Technicians of £K 800, generic IT costs of £2 million)

£40 million with £10 million allocated to R.

Research space allocation equates to PGR ratio (Other) indirect costs £80 million (Note this includes

central depts’ use of space). £20 million allocated to R.

Contractual working year of academics in the institution 43 weeks with contractual hours of 35 hours/week

COCE adjustment £7 million (£3 million allocated to R)

Infrastructure adjustment £4 million (£1 million allocated to R)

Estimated indexation over life of project 3.5% p.a. year 2 4.0% p.a. year 3-5 (all cost assumptions are stated at Y1 prices)

Equipment depreciation period 5 years

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Simple Case StudySimple Case Study

Model AnswerModel Answer

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Note 1: PI – to Directly Allocated

• Annual cost = 750/5 x £60,000/1650

• Annual PGR student support = 215 x £60,000/1650


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Note 2: Co-Investigator to Directly Allocated

• Annual cost = 200 x £40,000/1650 year 1






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Note 3: Research Assistant – to Direct



• Note: Years 1 + 2 only


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Note 4: Research Assistant – to Direct

• Annual cost = 1650 x £30,000/1650


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Note 5: 2 x Technicians – to Direct

• (1) £20,000 each year (1 – 5)• (2) £15,000 year 1• (2) £15,500 year 2• (2) £16,000 year 3• (2) £16,500 year 4• (2) £16,500 year 5


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Note 6: Dedicated Clerical post – to Direct

• £20,000 year 1

• £20,500 year 2

• £21,000 year 3

• £21,500 year 4

• £22,000 year 5


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Note 7: Travel – to Direct

• Annual cost = £10,000


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Note 8: Consumables – to Direct



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Note 9: Equipment – to Direct

• £51,000 charged at start of project

• £150,000 charged at start of project

CASE STUDY – 1.8aCASE STUDY – 1.8a

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• Note 9: Equipment – to Directly Allocated

• £49,000 across the 5 years = £9,800 pa.

• Adjustment required to reduce Estates/Premises cost (double counted)

CASE STUDY – 1.8bCASE STUDY – 1.8b

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Note 10: Use of Major Research facilities – to Directly Allocated

• Annual cost = 50/10 x £10,000


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Note 11: Computing Costs – to Direct



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Note 12: Project Studentship costs/fees – to Direct

• Annual cost = £12,000 stipend

• Annual cost = £4,000 tuition fees

• Annual cost = £1,000 training allowance


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CASE STUDY – 1.12CASE STUDY – 1.12Supporting Calculations - 1

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Supporting Calculations - 2

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£23,000,000/1,030 FTE (SC3) =

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CASE STUDY – 1.17aCASE STUDY – 1.17a

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CASE STUDY – 1.17bCASE STUDY – 1.17b

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SHORT SUMMARY OF SHORT SUMMARY OF RESEARCH COUNCIL RESEARCH COUNCIL

COSTING REQUIREMENTCOSTING REQUIREMENT

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Direct Charges [Can be vired during the life of the project, actual costs charged to sponsor. Note: possibly cash limited across life of project]

• Research Staff SalariesResearchersTechnicians (inc animal techs)OtherDirect administrationComputing/computing support staffCasual staff etc

• Travel & Subsistence• Consumables• Exceptional Items• Equipment• Large Capital

TRAC: full economic cost of projects (fEC) (1)TRAC: full economic cost of projects (fEC) (1)

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Directly allocated charges[Cannot be vired during the life of the project, original allocated value only charged to the sponsor]

• Principal Investigator• Other Academic staff• Major Facilities & External Facilities/labs• Replacement Cost of Departmental Equip• Other laboratory support staff• Estates/Premises Costs ( as £/FTE Academic

Staff & PGR’s, or net £m2)

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Indirect costs

• Indirect costs (as % of Direct Salary Costs)• Indirect costs (as £/FTE Academic Staff &

PGR’s)


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General changes to practice

• PI and other academic staff time now a direct cost (attributed) – attribution base is standard working year – 220days = 1650 hours [7.5 hrs per day, 37.5 hr week]

• Estates/Premises now a direct cost (attributed) – by driver. TR produced driver cost table – inflation indexed.

• Estates/Premises now include depreciation & an infrastructure charge.

• Estates/Premises rate based on £/FTE (minimum requirement) - £/m2 (weighted) per project (best).

• Estates/Premises will use £/FTE basis in majority of instances.

• All major facilities costs are now a direct cost (attributed) where possible – by driver. Costed.

• Laboratory support staff (technicians) not directly charged to the project are now a direct cost (attributed).

• Indirect costs now expressed in £/FTE (academic staff & PGRs)

• FTE numbers exclude PGRs funded by Research Councils as part of the grant.


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Cost Drivers

The annual estates/premises and indirect cost drivers must be generated through the Transparency process.

Once produced and satisfying the QA process these cost rates will be accepted without question by Government Departments and Research Councils.


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Costing & Pricing Projects

Government departments will normally fund 100% fEC. (HM Treasury letter 13/2/2004.)

Research Councils will fund a proportion of fEC, @ 80%. (Vol III p:20 Q+A.)

(Major equipment purchases – value over £50k - and student stipend etc are to be excluded from the % recovery formulae – 100% of allowable costs to be charged)

Research Councils are expected to increase the % of fEC to 100% by 2009/2010.

For other sponsors the fEC calculated will form the basis for the cost based pricing of the project.


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1 Full Economic Costs (fEC) of Research Projects An Introduction Presented by:

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